A firm has a production function f(x, y) = 2(x^0.90 + y^0.90)⁵ whenever x 0 and y 0. When the amounts of both inputs are positive, this firm has A) increasing returns to scale if x + y 1 and decreasing returns to scale otherwise. B) increasing returns to scale. C) decreasing returns to scale. D) constant returns to scale. E) increasing returns to scale if output is less than 1 and decreasing returns to scale if output is greater than 1.

Question

A firm has a production function f(x, y) = 2(x^0.90 + y^0.90)⁵ whenever x > 0 and y > 0. When the amounts of both inputs are positive, this firm has A) increasing returns to scale if x + y > 1 and decreasing returns to scale otherwise. B) increasing returns to scale. C) decreasing returns to scale. D) constant returns to scale. E) increasing returns to scale if output is less than 1 and decreasing returns to scale if output is greater than 1.

Quizplus · Accepted Answer

The production function exhibits increasing returns to scale because the sum of the exponents (0.90 + 0.90 = 1.80) is greater than 1, indicating that scaling inputs by a factor results in output increasing by a greater factor.

A Firm Has a Production Function F(x, Y) = 2(x0

A Firm Has a Production Function F(x, Y) = 2(x⁰